Like a number of its AI-powered peers, Palantir (NYSE:PLTR) has been on quite a roll over the past year.
Originally founded to support U.S. government agencies in their efforts to reduce fraud and combat terrorism, the big data analytics company has seen its commercial activity strengthen as the worldwide surge in demand for AI continues to grow by leaps and bounds.
However, with PLTR shares climbing 51% over the past 12 months, Paul Franke, a 5-star investor ranked in the top 4% of TipRanks’ stock experts, views the current valuation as overly optimistic.
“Its valuation appears to be well ahead of its projected growth rate,” says Franke, who contends that Palantir is “sitting at an ultra-expensive boom pricing level.”
The investor examined several key metrics, including price-to-sales and P/E ratios, leading him to conclude that the stock price is simply not backed up by the fundamentals.
“My biggest valuation issue is the price to sales ratio has moved from a middle of the pack, big-data software number several years ago to the highest in the peer group by far,” Franke explained.
According to the investor, Palantir’s lofty valuation allows little room for error, suggesting the stock could potentially drop to $15.
Additionally, Franke highlights significant insider selling, amounting to about $250 million since March 2024, questioning the rationale behind such substantial liquidations “if the immediate outlook was truly rosy to those running the company.”
Franke may reevaluate his position on Palantir if the price drops in the coming months. However, for now the investor rates PLTR shares as a Sell. (To watch Franke’s track record, click here)
Palantir prospects don’t appear too favorable amongst Wall Street’s analyst corps as well. Based on 7 Holds, 3 Sells and just 2 Buys, the stock has a Hold (i.e. neutral) consensus rating. At $22.11, the 12-month average price target implies a downside of roughly 5%. (See PLTR stock forecast)
To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.
